Twelve questions a good investment policy should address

In the recently released report by the Auditor General, for the year ended 31st December 2015, he pointed out that the Government does not have an investment policy and legal instrument to clearly guide the processes of identification and evaluation of possible investment projects. He further noted that there were no legal instruments to authorise the government to make long-term investments. He advised the government to establish a clear investment policy to guide and direct the government to the areas identified in the National Development Plan, in addition to a compilation of an enabling law to guide all its long-term investments.

According to Government Finance Officers Association, an American based organisation, an investment policy is the single most important element in a public funds investment program. It describes the most prudent primary objectives for a sound policy: safety, liquidity, and yield. It also indicates the type of instruments eligible for purchase by a government entity, the investment process, and the management of a portfolio.

Such a policy improves the quality of decisions and demonstrates a commitment to the fiduciary care of public funds, with emphasis on balancing the safety of principal and liquidity with yield. Adherence to an investment policy signals to rating agencies, the capital markets and the public that a government entity is well managed and is earning interest income suitable to its situation and economic environment.

Uganda Investment Authority (UIA) was established by an Act of Parliament (Investment Code 1991, which was later revised to the Edition 2000 Laws of Uganda) with the aim of promoting and facilitating private sector investment in Uganda. It operates as a semi-autonomous government agency operating in partnership with the private sector and Government of Uganda to drive national economic growth and development.

One of the most important roles of the Authority is to review and make policy recommendations to Government about investment. The government after receiving such suggestions then comes up with an investment policy, that the Auditor General alludes does not exist, and needs to be formulated.

There are several objectives to consider while drafting of an investment policy. The most prudent primary objectives for a sound investment policy should be: safety, liquidity, and yield, in that order. However, a good investment policy should address the following key questions, including:

• Who are the authorized investment officers?
• What standard of care will be established?
• What instruments will be eligible for investment?
• How will diversification be ensured?
• How will safekeeping be handled?
• What is the maximum term for any given investment?
• What type of internal controls should be in place?
• Who will comprise the investment committee (internal/external members), if any?
• What type of investment reports/performance reports will be produced?
• What types of benchmarks will be used?
• Will an investment advisor be used (and to what capacity)?
• What are the criteria for beginning or ending an investment relationship?

The guidelines provided for in the policy that addresses the questions raised above would make a strong investment policy that would steer the government and Uganda Investment Authority for the greater good. The Auditor General was therefore right to suggest that the government needed to formulate an investment policy.

As it is, it seems the Uganda Investment Authority has fallen short on its obligation to suggest any policy recommendations to government, and it operates without any policy guidelines.

How then, does such an investment authority operate, yet its objectives are to :

• Attract value adding investment that brings technology, skills & jobs
• Contribute to the image of Uganda as a leading African Investment destination
• Provide serviced sites, buildings & competitive infrastructure to meet the needs of growing Ugandan based businesses
• Stimulate & lead key stakeholders in creating a competitive business environment
• Setup and develop Industrial and Business Parks; and Offer support to SMEs

It is, therefore, prudent to assert that government acts fast and puts in place such policies that would serve to benefit the country through proper guidance and adherence to the rule of law. Besides, the lack thereof exposes the government to a risk of entering into less profitable investments resulting into loses.